Alibaba reported better-than-expected revenue of $5.33 billion for its fiscal third quarter, an increase of 32% versus the prior year and above the consensus estimate of $5.13 billion. The company reported third-quarter EPS (excluding onetime items) of $0.99, up 27% year over year and beating consensus of $0.89. Net profit for the three months ended December more than doubled, to $1.9 billion, including a gain from the sale of the company’s movie-related businesses. Excluding the gain, profit rose by 25%, fueled in part by the company’s performance during Singles’ Day, a Chinese online shopping festival held in November. Alibaba’s sales increased by 54% during the event. Revenue increased at a higher rate than GMV due to growth in online marketing-services revenue. Alibaba added new online marketing inventory on both mobile and PC interfaces, which resulted in higher marketing spend by merchants. Commission revenue as a percentage of China commerce retail revenue was 32% in the quarter. Additionally, Alibaba reported 407 million annual active buyers, up 22% from a year earlier. Mobile MAUs increased by 48%, to 393 million, which accounted for an increase of 192% in the company’s mobile revenue. According to management, Alibaba was well positioned to benefit from China’s shift from an investment-driven and manufacturing-heavy economy to one that is fueled by consumption and services.

ACTIVE USERS

Annual active buyers and mobile MAUs showed robust growth in the quarter. Annual active buyers increased to 407 million, up 22% from a year earlier, beating consensus expectations of 386 million. The growth was driven by an increase in users accessing the platforms through mobile devices, which, in turn, was driven by increased promotions of the company’s mobile e-commerce apps, especially the Taobao mobile app. December mobile MAUs grew to 393 million, an increase of 48%, beating consensus estimates of 346 million and accounting for an increase of 192% in mobile revenue.

MONETIZATION RATE

As its user base increased, Alibaba was able to increase its monetization rate. Despite a slowdown in growth in the Chinese retail marketplaces over the previous two quarters, the “blended” monetization/take rate increased to 2.98% compared to 2.70% in the same period a year ago. The mobile monetization rate popped from 1.96% to 2.88%.

GMV

Total GMV—a measure of the total value of e-commerce transactions on the platform—increased by 23% versus the same quarter in 2014, to $149 billion. This represented the slowest annual growth rate in more than three years and was below the consensus estimate of $155.2 billion. Mobile GMV transacted in the quarter was $101 billion, up 99% from the same quarter a year ago. Mobile GMV accounted for 68% of total GMV in the quarter, compared to 42% in the year-ago quarter. The results for Taobao, Tmall and mobile GMV were all below consensus estimates:

• Taobao: ¥564 billion versus consensus of ¥2 billion
• Tmall: ¥401 billion versus consensus of ¥6 billion
• Mobile GMV: ¥651 billion versus consensus of ¥7 billion

Alibaba is trying to replace decelerating volume growth in online shopping by expanding in other areas. Management noted that consumers come to the Taobao marketplace and Tmall to browse, look for new trends, receive merchant and product updates, compare products, share shopping experiences, and be entertained. The value of these actions may not be captured by GMV, but the insights they provide help merchants build their brands, acquire and engage customers, and promote sales. The ability to attract merchants and engage and retain buyers will drive future growth online and offline, Alibaba believes. Management noted that it expects revenue to grow faster than GMV for the foreseeable future.

ADDITIONAL

Alibaba agreed on the sale of its stake in online-to-offline startup Meituan-Dianping for approximately $900 million.

GUIDANCE

Alibaba maintains a policy of not providing earnings guidance with its quarterly reports. There has been continuous effort with regard to maintaining and improving the quality of the user experience, which will likely lead to continued growth in GMV. Growth will also be driven by the addition of new customers in rural areas, which Alibaba believes holds huge potential for the future. The company also plans to increase its footprint in top-tier cities, including Beijing, Shanghai, Shenzhen and Guangzhou. Alibaba is very committed to Koubei, a local-services joint venture that Alibaba established with Ant Financial. Koubei is a fast-growing company operating in the online-to-offline space—especially in areas related to food. Daily transactions (via Alipay) averaged more than 5 million in December.